From Bribery to Empowerment

WASHINGTON, DC – Last month, Tyco International paid the United States government $26 million in penalties for bribing officials in Thailand, Turkey, and elsewhere. In the last three years alone, fines for violations of the US Foreign Corrupt Practices Act (FCPA) – under which corporations with ties to the US face criminal penalties for paying bribes to foreign government officials – have exceeded $2.1 billion. Similar laws are enforced in more than 20 countries.

Beyond showing that the US and others are taking seriously the governance failures that frustrate citizens everywhere, the fines create an opportunity to stamp out corruption. Rather than treat the fines as national revenue – as in the US, where they are deposited directly into the national treasury – governments should apply them to addressing the root causes of corruption worldwide.

Congress enacted the FCPA in 1977, in the wake of Watergate, after revelations that more than 400 American companies had paid bribes totaling more than $300 million to foreign government officials and politicians. Over the last 35 years, the US Department of Justice has established strong enforcement mechanisms, leading to enhanced compliance efforts by firms.

Meanwhile, social movements in the Middle East, India, Russia, Malawi, the US, and elsewhere have challenged corruption, demanding increased accountability and transparency from governments and business leaders. Citizens are rejecting fraudulently negotiated mining contracts that imply high environmental and social costs and few benefits for the public. They are protesting poorly constructed water and transportation infrastructure. And they are demanding to know why essential medicines disappear before they reach patients.

Foreign corrupt practices laws are rooted in the recognition that governance should cross borders, just as capital does. But such laws have limits. While strict penalties may deter US-connected companies, firms without any link to a country with an enforcement regime can still trade bribes for contracts. In other words, while the laws stymie one supply channel, they do not shut down the pipeline – and they do nothing to curb demand.

To increase the FCPA’s impact, the fines collected should be dedicated to the global fight against corruption. One option is to return the fines directly to foreign governments, which could then invest in, say, anti-corruption commissions or improved public-sector financial management. But this approach is risky – akin to paying the fox to guard the hen house.

Another possibility would be to establish a multilateral mechanism for financing the direct legal empowerment of citizens worldwide. In the Philippines, South Africa, Indonesia, and elsewhere, networks of community paralegals (non-lawyers trained in the basics of law and government) work with citizens to seek redress from breaches of policy.

In Sierra Leone, paralegals are monitoring officials’ compliance with a new free health-care policy, and representing a community whose land was unlawfully damaged by a firm mining iron ore. In intractable cases, paralegals can turn to a small group of lawyers, who can pursue solutions through litigation or higher-level advocacy.

Like health care and the environment, legal empowerment is a public good. It increases governments’ accountability, while helping to make economic development more equitable. But, given that legal-empowerment efforts constrain state power, there is a natural disincentive for states to finance them. As a result, a global financing mechanism is crucial.

Such a system should be reciprocal. The US should agree both to contribute and to receive investments, albeit in different proportions. After all, corruption exists everywhere, so legal empowerment is always needed. The distribution of funds across countries could be linked to metrics like the World Justice Project’s Rule of Law Index.

The US and others have made progress in punishing domestic firms that engage in corrupt practices abroad. But narrowing the global governance deficit requires closer cooperation, and a willingness to invest in civil-society organizations that hold governments accountable.

Significant funds have been collected in the name of fighting corruption worldwide. Those resources should be invested in winning the battle.

Comments

Totally agree with the thesis. As a lawyer whose practice largely deals with FCPA issues, I can tell you that the amount spent on fines is a tiny, tiny fraction of the amount spent on defense costs, which are particularly high in this context because of the DOJ's tendency to threaten individual criminal liability rather than just regulatory or corporate criminal liability. I wonder what policy changes can be made to better use these resources. Bigger fines without the threat of jail time? Is jail time a necessary deterrent? I don't know one way or another, but I do know that the threat of prison is one of the biggest reasons these cases are so hard to resolve early on. Add to it the fact that the FCPA has only recently become an enforcement priority for the DOJ (and many countries still do not enforce the laws that they have), and guidance is often as weak as the culture of compliance, and you have targets who believe that this is a triable issue. Indeed, the government has had very mixed results in FCPA trials.

Much to fix with this law, not least of which is ensuring broad enforcement efforts by major industrialized nations. Read more

Robert Skidelsky
on why the right economic policies cannot work without the right public expectations.

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